Health goes short as the tram mandate is met

LIGHT rail is operational. Congratulations are due to the government; it has kept its election promise and honoured the mandate from the people of Canberra.

Jon Stanhope.

Mandates are funny things. The tram was the singular point of difference between the Labor/Greens government and the Liberal opposition at the last ACT election.

The Liberals demanded that the business case for the tram – such as it was – in the interests of good government and prudent and responsible financial management, that the project not proceed. The people of Canberra disagreed and Labor and the Greens were returned to government. They kept the faith and stage one of the tram is up and running and stage two is set to be launched.

The tram does, of course, come at a cost. In fact, for stage one alone the whole-of-life cost is, according to the auditor-general, $1.779 billion, to the taxpayer.

This is a lot of money, particularly when measured against the size of the annual ACT Budget, which is only around $6 billion. Stage two of the tram, from Civic to Woden will cost much more than stage one and could conceivably cost residents more than $2 billion over the whole-of-life.

To put these costs in perspective, stage one alone is equivalent to approximately 4.5 per cent of the ACT economy. By comparison, the NBN is approximately 3 per cent of the national economy. Relative to the size of the respective economies stage one of the tram is, therefore, one and one half times greater than the NBN.

The full tram project was committed to by the government, but the cost of which has not been disclosed will be, conservatively, more than 12 times the scale of the NBN relative to the respective economies of the ACT and the Commonwealth.

Because of the scale of this project it would have been wise for the government to have explained where the money to pay for it was coming from.

It is moot then to ask now that it’s running, where the money for the tram has in fact come from and whether the mandate which the government clearly received from the people of Canberra to build it extends to the government taking whatever steps it has deemed necessary to pay for it.

This question has increasingly occupied my mind as the government fends off growing concern and justifiably strident criticism of its performance in the area of greatest concern to the community, namely healthcare. Experience tells us that the most likely explanation for a change in the level or quality of any government service is a change in its funding.

It was in light of this that a colleague of mine, Dr Khalid Ahmed, and I recently had a close look at the state of the ACT Budget.

What our analysis revealed is not pretty. In summary the ACT Budget is at its weakest – weaker even than at the time of the Global Financial Crisis. The operating budget is labouring under a significant underlying deficit. Net debt is increasing at an unsustainable rate of 23 per cent a year and is forecast to increase from $1.3 billion in 2017-18 to $2.95 billion in 2021-22 or by more than $1 million a day for four years.

Net financial worth, the amount by which total financial assets exceed financial liabilities, at the end of 2018 was negative $662 million. This means that the government does not have sufficient assets to cover its financial liabilities. At the end of 2013, the ACT’s net financial worth was a positive $767 million. In other words, in the period since we committed to the tram, our net financial worth has deteriorated by $1.429 billion.

Our analysis of the ACT Health budget reveals that, after taking into account population growth and an increase in demand related to ageing and new health technologies, that the hospital budget has been going backwards at about 1 per cent a year over the past four years – even before wage increases and increasing costs of medicine are taken into account.

We estimate that in 2016-17 an extra $37 million should have gone to the hospitals just to keep pace with demand and that, in order to properly fund growth in demand, as well as wages and other costs, the hospitals should have received, conservatively, an additional $120 million in that year alone.

It seems to me incontrovertible that the reduction in the nature and quality of health and other services is a consequence of reduced funding. One can understand the growing concern and increasing angst of residents about the quality and timeliness of a range of government services. I am increasingly concerned, for instance, at the disproportionate impact of an increasing range of government policies on the aged, pensioners and young families.

However, the question I am asking is: can the government fairly say in response to this mounting criticism that it is doing no more than respecting the clear mandate from the people of Canberra to proceed with the tram and that its expenditure priorities, which have, for example, involved massive cuts to health, simply reflect the will of the people?

Can anyone really deny the government the right to say that surely we all knew, when we voted for the tram, that the billions of dollars it is going to cost had to come from somewhere and where else if not from the health budget.

Jon Stanhope was chief minister from 2001 to 2011 and represented Ginninderra for the Labor Party from 1998. He is the only chief minister to have governed with a majority in the Assembly.

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5 COMMENTS

Given its a PPP arrangement with no payments made as of yet, how can money not spent in previous years Budgets be paying for the tram? When net debt is increasing, that clearly shows reserves/funding available are not increasing….. its a bit of a strange logic for mine.

No doubt there will be cuts in expenditure to come to pay for the Tram, but I think its a bit rich to suggest expenditure on it has cut expenditure on other things, when a cent is yet to be paid for it…

Thank you Jon Stanhope for this full analysis of the financial situation the Territory is now in. In regard to the light rail, I do not agree however that all Canberrans voted for it. It was a deal done between Labor and The Greens in order for Labor to win Government?

Dear Jim. Thank you for your comments. There are a couple of issues which you may wish to consider.
While I accept that the Government has been less than transparent about light rail costings and it is hard to work out what is going on, it is clear, contrary to your suggestion, that many millions of dollars have been expended by it on the project to date. Take for example the wages and on-costs of Capital Metro. I am guessing they would run into the tens of millions of dollars-the budget papers over the last few years would give you the actual amounts.

In the current financial year, which runs out in ten weeks time, the Government will pay $412 million under the PPP contract-see Budget Paper 3 , Page 348.

It is, of course, naive to think that the PPP will deliver anything for free. Capital and interest costs, operating costs and even costs in relation to delays in construction will almost certainly be met by the taxpayer. It is standard practice in PPP’s and other major contracts where a private sector partner is expected to absorb the cost of risk for that cost to be priced into the contract. I will be amazed if our PPP partners, out of the goodness of their hearts,have not done that in this case.

For a more complete but albeit still limited understanding of the costs of light rail it is also worth having a look at the Auditor-Generals report where a range of works and costs not included in the PPP are detailed. A major gap in the information available to the community was the cost of relocating utilities ( reported in the Canberra Times in 2013 as possibly being as much as $200 million ) and whether any of that cost is funded through the PPP.

The light rail business case at page 81 also identifies a range of costs related to the project that were not included in its costings.

One thing that is certain is that as a consequence of not funding for growth in demand very heavy cuts have been made to the health budget, to the tune over the last few years, of hundreds of millions of dollars. It may of course be purely coincidental that these have been made at a time when the Government has committed to funding a priority transport project requiring funding of an order similar to the amount of the cuts to health.